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“Obstruction of performance” under Article 86(2) of the EC Treaty and its application to the water sector

Thursday, January 15, 2009

My master thesis attempts to define "Obstruction of performance" under Article 86(2) of the EC Treaty and how this category can be applied to the water industry. The thesis argued that Obstruction of performance has to be narrowly interpreted and necessity/proportionality of the measure has to be taken into account in order to invoke "Services of General Economic Interest" (SGEI) justification under the EC Treaty. Comparing with electricity and gas sector, I conclude that specific situations in the water industry may justify its exclusion from general EC Competition rule. Scenarios where "obstruction" in the water industry occurs were explored.

Provision of water and sewerage services has traditionally lies upon the responsibilty of the state for ages. Internal market integration and liberalisation processes so far had always exclude water sector from its agenda. Even until today, there has been no sectoral regulation adopted by the EU concerning liberalisation of water and sewerage services. The Parliament in its Resolution makes clear of its position that it rejects water being put in a sectoral directive due to its regional characteristics, but calls for “…without going as far as liberalisation, for water supply to be ‘modernised' with economic principles in accordance with quality and environment standards and the needs of efficiency”.

However, the Comission had shown its interest in liberalising water and sewerage service. The annual turnover of the water sector in EU is estimated at 80 billion Euro, more than the turnover of the gas sector. The Commission has expressed concerns that horizontal and vertical restrictions from long term supply dealings “…may be harmful and contrary to EC law even where national law allows them”. In its internal market strategy for 2003-2006, water is listed as one of the area where” new action may be required”, by reviewing legal and administrative situation in the water and waste-water sector, which include an analysis of the competition aspects.

Download the full thesis here.